Don’t Be Fooled by Low Mortgage Rates: Closing Costs FAQs

Don’t be fooled by low mortgage rates without considering your closing costs. Closing costs can make or break your purchase of a home, and they’re often overlooked until it’s too late.

Closing costs and discount points are essential factors to consider when obtaining home loans. Lenders may try to deceive you with low rates and hide how much it costs to get those low rates. So, keep reading to learn more about closing costs and how mortgage discount points can affect your rate in the end.

How Do Closing Costs Affect Rates?

Closing costs and mortgage rates are two important factors that affect the overall cost of a home purchase. Closing costs are fees and expenses that are charged when buying a home.

Closing costs can include discount points, origination fees, title insurance, and other administrative costs. appraisal fees, title insurance, and attorney fees. Closing costs vary depending on the lender, location of the property, type of loan, and other factors.

How do Mortgage Rates Determine Closing Costs?

Mortgage rates also play an important role in determining closing costs. A lower fixed interest rate leads to lower monthly mortgage payments. However, it may lead to higher closing costs due to discount points charged by lenders.

Conversely, a higher interest rate could mean lower closing costs but result in higher monthly payments over time. As a result, the total cost of your loan over time may be higher even when you get a lower rate.

Some lenders may fool you into thinking you are signing up for a lower interest rate that won’t cost you anything extra.  But, what they’re doing is making you trade a lower monthly payment for higher closing costs!

It’s crucial for buyers to understand how these factors interact when financing their home purchase. Carefully consider both closing costs and mortgage rates when searching for a new home purchase or refinance. This can help you make informed decisions about what works best for you financially.

How Do Lenders Try to Fool You?

As we’ve already explained, many lenders advertise affordable financing with low mortgage rates. However, they may try to hide the fact that low rates result in higher closing costs.

Another tactic mortgage lenders use is called the “bait and switch”. They offer you an attractive loan package initially but then change the terms at closing. This could include higher interest rates or additional fees that were not discussed during the initial application process.

Some lenders pressure borrowers to buy add-ons such as credit insurance or to use their company-owned title company or homeowners insurance agent. These add-ons can raise the cost of the loan considerably.

It’s essential to be vigilant when selecting a lender and read all documents carefully before signing anything. Don’t let yourself be swayed by low-interest rates without considering the closing costs associated with them.

Customer reviews online will often reveal bait and switch tactics.  Read reviews carefully for evidence that a lender did not honor at closing what was promised at the time of the loan application.

What Are Typical Closing Cost Charges?

Closing costs on a mortgage loan can vary based on several factors. Some lenders may charge higher fees than others. Here are some typical closing costs charges that you may encounter during the home-buying process:

Often one of the biggest expenses is the origination fee, which covers the cost of processing your loan application. This can be as high as 1% of your total loan amount.

You may think 1% is a small number but it can be huge depending on your loan amount.  Take a look at the following calculations to see how much a 1% origination fee impacts your closing costs:

Loan Amount	1% Origination Fee
$250,000	$2,500
$500,000	$5,000
$1,000,000	$10,000

 

HomePromise has one of the lowest origination fees in the industry at only $590.  That’s right, only $590 regardless of the loan amount.  Take a look below at how much you save on closing costs with the lower HomePromise origination fee:

Loan Amount	1% Origination Fee	HomePromise	Savings with HomePromise
$250,000	$2,500	$590	$1,910
$500,000	$5,000	$590	$4,410
$1,000,000	$10,000	$590	$9,410

 

To find out more about the savings that may be possible with HomePromise, please call 800-720-0250.

Title insurance is an important expense. Among other benefits, it may safeguard both you and your lender in the event of any issues concerning ownership or prior liens on the property.

An appraisal is required on most home loans.  This fee amount can vary but it is typically between $600 and $900.

Other fees may include credit report fees, recording fees, and tax service fees. These usually add up to a few hundred dollars in total.

Additional charges may be due at closing, such as government transfer taxes also known as tax stamps.  You will probably see charges for property taxes and homeowner’s insurance premiums. These are also known as prepaid expenses.

It is important to review estimated closing costs before finalizing your mortgage application. These costs can significantly affect the amount of money needed when buying a home.

How To Avoid High Closing Fees

When it comes to closing costs, there are alternatives that can help you avoid high fees. One option is to negotiate with the seller to cover some or all of the closing costs. While this may not always be possible, it’s worth exploring as a potential solution.

Another alternative that we explained above is to consider a lender like HomePromise with a very low origination fee. A big benefit of the HomePromise origination fee is that it does not go up as your loan amount goes up. It is always only $590.

Working with a reputable lender like HomePromise can help ensure that you get good advice and guidance about rates and fees. This may help you save on your mortgage closing costs.

How do Discount Points Work?

Discount points are a common term used in the mortgage industry, but not everyone understands what they really mean. Discount points are fees paid to a lender at closing.

Discount points enable borrowers to reduce the interest rate of their home loan. Essentially, this is the purpose of discount points. For example, one discount point equals 1% of the total loan amount.

Discount points can be beneficial for borrowers who want to lock in a lower interest rate and save money on monthly payments over the long term. However, it is important to understand how they can also increase closing costs. The cost of each point is 1% of the loan amount which can be a large cost if your loan amount is big..

Strategies for Saving on Closing Costs

When it comes to closing costs, saving money is always a top priority. Fortunately, there are several strategies that homebuyers can use to reduce these expenses.

First, consider HomePromise with a low $590 origination fee. HomePromise charges a lower origination fee than most lenders.

Another option is negotiating with the seller for them to pay a portion of the closing costs. Buyers or sellers may choose to pay these fees through negotiations. In most cases, it doesn’t matter if you pay your closing costs or if the seller pays your closing costs.

Review all documents related to your transaction, including the Loan Estimate and Closing Disclosure forms from your lender. Do this at least three days before the scheduled closing date. This will ensure accuracy and transparency.

Homebuyers can save a lot of money on the origination fee by calling HomePromise 800-720-0250. This can amount to hundreds or even thousands of dollars saved at closing..

Applying With HomePromise

You should now have a better understanding of the impact of discount points and closing costs on your loan. It is essential to pay attention to these costs. Remember that low rates may seem appealing but they can be deceiving if the closing costs are high.

At HomePromise, we understand the importance of transparency and helping our clients make informed decisions. That’s why we offer free advice and guidance.

Our experts can help you find the best loan option for your personal finances. We will guide you through every step of this process. We offer resources and strategies to reduce closing costs. This allows you to focus on achieving your dream of homeownership.

Ready to apply with HomePromise? Give us a call 800-720-0250 to get started!